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CENTRAL BANKING
CENTRAL BANKS
 HNB
The Croatian National Bank (CNB)
 ECB
The European Central Bank
ECBS
The European Central Bank System
 The Bank of England
 The Fed
The Federal Reserve (System)
…
Which words are defined below?
open-market operations, required reserve,
discount rate
 The amount of funds that banks must
hold in reserve against deposits made
by their customers is called ….
 The rate at which the central bank lends
money to commercial banks is called …
 The buying and selling of government
securities in the market in order to
increase or reduce the amount of money
in the banking system is called …
Match the two columns:
interest
money
required
lender
open-market
monetary
discount
exchange
policy
rate
operations
reserve
rate
rates
supply
of last resort
Matchings:
 interest rates
 money supply
 required
reserve
 open-market
operations
 monetary
policy
 discount rate
 exchange rate
 lender of last
resort
Central banks are in charge of…
ensuring, holding, implementing, providing,
supervising, acting










…monetary policy
…price stability
…the exchange rate (forex operations, FX)
…commercial banks
…as lender of last resort
…bank reserves (required reserve)
…currency (cash) to banks
…loans to banks - discounting
…as the government’s bank
…as the bankers’ bank
Central banks are in charge of…
 implementing monetary policy
 ensuring price stability
 supervising the exchange rate (forex, FX
operations)
 supervising commercial banks
 acting as lender of last resort
 holding bank reserves (required reserve)
 providing currency (cash) to banks
 providing loans to banks - discounting
 acting as the government’s bank
 acting as the bankers’ bank
Assignment: Read the extracts from Schiller’s
Essentials of Economics (1996) and fill in the
table:
MONETARY
POLICY
Expansionary
(Loose)
Restrictive
(Tight)
PROBLEMS
GOALS
MEASURES
What has
gone wrong?
What should be
done?
How should it
be done?
Read the extracts from Schiller’s Essentials of
Economics and fill in the table:
MONET.
POLICY
PROBLEMS
OBJECTIVES
MEASURES
Expans.
Economy in
recession
(below its fullemployment
potential)
To stimulate the
economy:
to increase
borrowing & spending
Increasing the money supply:
-lowering the reserve requir.
-dropping the discount rate
-buying more bonds
Restr.
Overheating
economy
(too much
pressure on
production
capacity,
rising prices)
↓
to encourage output
-lowering interest rates
-easier approvals of loans
To cool the economy:
to lessen loan
availability →lower
investments
↓
to reduce aggr.
demand
Reducing the money supply:
-raising the reserve requir.
- increase the discount rate
- selling bonds
- higher interest rates
- less available loans
Loose or tight?
Quantitative Easing‘ (QE)
QE is an unconventional monetary policy in
which a central bank purchases
government securities or other securities
from the market in order to lower interest
rates and increase the money supply.
Quantitative easing increases the money
supply by flooding financial institutions with
capital in an effort to promote increased
lending and liquidity. QE targets
commercial bank and private sector assets
and attempts to spur economic growth by
encouraging banks to lend money.
Quantitative easing is considered when
short-term interest rates are at or
approaching zero, and does not involve the
printing of new banknotes.
Read more about QE: http://www.investopedia.com/terms/q/quantitativeeasing.asp